Vietnam may be in for a new foreign investment boom.
The Southeast Asian nation seems to be on the verge of seeing a massive influx of foreign capital, especially from the United States. American businesses have a relatively smaller presence in Vietnam compared with their rivals from its neighbors.
U.S. President Joe Biden’s visit to Vietnam last month, aimed at strengthening the bilateral diplomatic ties, seems to have ushered in a new era of expanded economic links between the two countries. A fourth boom of foreign investment in Vietnam may be in the making.
During his visit to the headquarters of chipmaking giant Nvidia in San Francisco on Sept. 19, Vietnamese Prime Minister Pham Minh Chinh, called on Nvidia CEO Jensen Huang to establish a production base in Vietnam and capitalize on it as its manufacturing hub in Southeast Asia. Nvidia is the leading manufacturer of chips to power artificial intelligence systems. Responding positively to Chinh’s passionate proposal, Huang said Vietnam is undergoing huge changes.
Chinh also met with other prominent figures in the American tech sector, including Microsoft founder Bill Gates and senior executives from Meta, formerly known as Facebook, and Elon Musk’s SpaceX.
These visits and meetings were squeezed into his busy schedule ahead of attending the United Nations General Assembly in New York, highlighting Vietnam’s keen interest in forging connections with U.S. tech giants.
During his visit to Vietnam, Biden held talks with Communist Party chief Nguyen Phu Trong and agreed to raise the bilateral relationship to the highest level of “comprehensive strategic partnership.” Upgrading its relationship with a foreign government by two ranks in one step was an unusual move by Washington.
The high-profile talks between the two leaders were accompanied by some big business deals. Vietnam Airlines, the national flag carrier, has signed an initial agreement to buy 50 Boeing 737 Max jets in a deal valued at about $10 billion.
Vietnam’s leading tech firm, FPT Software, has announced a strategic partnership with the American startup Landing AI. Synopsys, a leading semiconductor design company, has signed a memorandum of understanding with a Vietnamese government organization to collaborate on helping the Vietnamese semiconductor industry cultivate its chip-design workforce and R&D fabrication capabilities.
Historically, Vietnam has witnessed three significant booms in foreign direct investment. The first occurred when Honda Motor began local two-wheeler production in 1997. The second wave spanned the period from the early 2000s up to the time around the collapse of the U.S. investment bank Lehman Brothers in 2008, which triggered a global financial crisis. Notably, Samsung Electronics of South Korea launched a mobile phone production base in the northern Bac Ninh province in 2009.
The third boom is believed to have come into full swing in the mid-2010s. With its purchasing power increasing, Vietnam became a lucrative target for foreign consumer businesses. Japanese shopping behemoth Aeon, for instance, inaugurated its first Vietnamese store, Aeon Mall Tan Phu Celadon, in the country’s largest city, Ho Chi Minh, in 2014.
Now Biden’s visit may trigger a surge in American investment in Vietnam. While the U.S. government acknowledges the fact that Vietnam does not necessarily comply with core principles upheld by the U.S., such as democracy and respect for human rights, due to its single-party communist rule, Washington nevertheless perceives Vietnam as a friendly nation that is not part of China’s sphere of influence. Biden’s diplomatic move may be interpreted by American businesses as a green light to invest in Vietnam.
Historically, American business investments in Vietnam have been modest compared to those by Asian economic powers like Japan or South Korea. As of the end of 2022, total U.S. direct investment in Vietnam was $11.4 billion, ranking 11th overall and significantly trailing behind the figures for countries like South Korea ($80.9 billion), Singapore ($70.8 billion) and Japan ($68.8 billion).
Vietnam is keen to pivot from its traditional labor-intensive industries, such as garment manufacturing and electronics assembly, toward more value-added high-tech sectors. Collaborations with U.S. tech companies, especially those dominant in the areas of semiconductors and AI, will be crucial for the transformation of the country’s industrial structure.
Prime Minister Chinh has directed relevant government departments to train 30,000 to 50,000 semiconductor experts. With the anticipated introduction in 2024 of international minimum taxation to keep multinational companies from avoiding taxes by moving their profits to countries with low tax rates, Vietnam is mulling new policy measures to attract multinationals and is accelerating preparations to welcome foreign investments. But it still remains to be seen whether Vietnam’s fourth boom will become a reality.
Source: Nikkei Asia
